What can you look out for to find a property investment hotspot?
Blogger: Peter Gianoli, general manager, Investor Assist
A property investment hotspot is an area or suburb that has been identified as having potential for stronger growth (in the short or long term), compared with the rest of the market.
There is no exact science to identifying a hotspot. In reality, a property investment hotspot is identified by assessing all the information on hand, including both quantitative and qualitative data. This includes firm data such as sales statistics, rental returns and capital growth, combined with factors which are a little harder to quantify such as culture, lifestyle, amenity and a sense of community.
Below is a list of 10 criteria that we use at Investor Assist to help decide whether an area is a potential hotspot. The list is certainly not exhaustive and we are yet to find a suburb that ticks every box. If you are lucky enough to find a suburb that meets all the criteria criteria – you have not found a hotspot, you have found a goldmine! But if you think a suburb or area meets three or more of the following criteria, it is definitely one to watch.
1. Created or driven by a reputable developer
If you are looking to invest in an area, particularly a new suburb, check out the credentials of the developer and make sure they know what they are doing. You are safer to invest with a developer with an established reputation and a track record for developing award-winning estates. Some of the better-known developers to look out for in WA include ABN, Peet, Stockland, Satterley and Mirvac.
2. Part of a well-planned community
A reputable developer will create a well-planned community, which is important in sustaining the long-term value of your investment. Make sure you have a solid understanding of the estate master plan and keep an eye out for well-planned road networks, cycle paths, shops, schools, community amenities and what percentage of the overall estate has been retained or dedicated to public open spaces and parklands.
3. Views or proximity to the coast
Australians have always had a love affair with the coast and living by the beach. Plus, property values speak for themselves – the closer a property is to the beach, the more valuable it is. The same goes for views. So, if you are able to invest in a property that will benefit from a coastal lifestyle or is surrounded by views of natural bushland, they are always sought after and retain their value better than homes that have less to offer.
Affordability is important in any investment. You do not want to over-stretch yourself and there needs to be evidence of value for money for an area to be deemed a property investment hotspot. If you are investing in a new estate, you do not need to build the best house in the most expensive street. Often a more affordable property a few streets back will prove to be the better investment.
5. Evidence of strong sales or growth
A property investment hotspot is only a hotspot if it offers potential for price growth, so if properties are now selling for a premium, the horse may have already bolted and prices in the area could be maxed out. This often happens if you are one of the last to find out about a particular hotspot. That being said, you don’t necessarily want to be the first person to invest in an area or new land estate. It is important to see evidence of sales and demand before investing your hard-earned money. You want to know that you are investing in a solid community and that your property won’t be the only house standing in a potential ghost town.
6. Existing or planned infrastructure
Proximity to existing or proposed infrastructure is important for any property investment, regardless of whether you are investing in a new or established community, as it increases the value and appeal of a property. Infrastructure includes shops, cafes, schools, medical facilities, parks, sporting facilities, community amenities and more. Convenience can add a great deal to both property value and rental returns.
7. Easy access to existing or proposed public transport
Similarly to proximity to infrastructure, it is preferable for a property to have easy access to existing or proposed public transport. There is a reason why properties closer to train lines are more valuable – people like to be able to walk to train stations and have access to a wide range of attractions. Have you noticed that whenever a new train station is announced it generates a flurry of interest in the surrounding real estate? This is because knowledgeable investors and property buyers understand the significance of the location.
8. A sense of community
You can’t put a tangible value on it but everyone likes to be a part of safe, welcoming and vibrant community, and this can greatly enhance the value of your property investment. If you invest in a high-crime area or near a school with a poor reputation, this will do little to enhance the value of your property or attract quality tenants. Always research the community, not just the properties in it.
9. Culture and lifestyle
Similar to being surrounded by a strong sense of community, a strong sense of culture and lifestyle will enhance an area’s reputation as a property investment hotspot. Just think of some of the most popular suburbs in Perth, such as Leederville, Mount Lawley, East Perth and Victoria Park – they are all popular because they offer vibrancy and culture in the form of restaurants, cafes, retail outlets and entertainment. These suburbs are out of reach for many investors and your chosen suburb does not need to provide culture to the same standard, but everyone likes to have at least one cafe, shop or restaurant close to home.
10. The 'halo effect'
A smart way to identify a potential property investment hotspot is to look at the areas that have recently enjoyed accolades and popularity or sustained capital growth. Once an area has maxed out in terms of price, it no longer has value as a hotspot. However, areas surrounding an existing hotspot often benefit from what is known as the ‘halo effect’, which can increase their value too. You can read more about the halo effect here.
Below is a basic guide to assist with evaluating whether a suburb is worthy of being deemed a hotspot:
- Three or more of the above features – definitely a suburb to watch;
- Five or more features – most likely qualifies as a hotspot;
- Seven or more features – it’s a hotspot!
- Ticks all the boxes – invest, invest, invest!
Critical things to remember about identifying a property investment hotspot are that the prediction should not be highly speculative, should not be high-risk and should not be for the purpose of short-term investment gain. Any attempt to identify a hotspot should be a measured, carefully calculated assessment of an area’s strengths and potential risks.
This means that some areas that meet a number of the criteria, such as a mining town experiencing a boom (as was the case in recent years), should be approached with caution, as they are deemed higher-risk than others. As previously mentioned, it is important to carefully assess all strengths and potential risks relevant to an area before an investment decision is made, and you should always be ready to invest for the longer term. Property investment hotspots can be given a bad name by businesses or agents who are willing to spruik an area to generate sales, rather than genuinely assist investors to make smart investment decisions.
Peter Gianoli joined ABN Group in 2011 to establish Investor Assist. Peter has more than 15 years of experience in the property industry working across some of the country’s premier development projects and throughout his career has overseen the sale and settlement of properties worth in excess of $1bn. Peter is also a highly sought after public speaker and has educated audiences throughout Australia and around the world on topics including property marketing and investment.